Vodacom leverages Safaricom investment to post profit increase

Published on 13 May 2019

By Chris Tredger

Mobile network operator Vodacom has underlined the value of its investment in Kenyan telco Safaricom after having posted an operating profit of R24.5 billion as part of its annual results for the year ended 31 March 2019.

Vodacom owns a 34.94% stake in Safaricom, and its operations outside of South Africa include Tanzania, DRC, Mozambique and Lesotho.

According to a media statement released by Vodacom, Safaricom reported net profit growth of 14.7% and proposed both a normal dividend of KES50.08-billion (R2.3-billion) and a special dividend of KES24.84-billion (R1.1-billion).

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"Our strategic investment in Safaricom contributed R2.8-billion to Vodacom Group's operating profit, with Safaricom reporting a 7.0% increase in service revenue and a 13.1% improvement in EBIT, underpinned by strong customer growth and M-Pesa revenues," said Shameel Joosub, Vodacom Group CEO.

According to Joosub the Safaricom acquisition has proven to be a catalyst for extending Vodacom's "mobile money leadership position on the African continent and in ensuring that Financial Services have become a significant contributor to the Group's revenues."

"In the past year, we effected 11 billion transactions worth R2-trillion to 36.1 million customers across our financial services network, including Safaricom. In South Africa, our profit before tax from financial services doubled to R1.0-billion, while M-Pesa revenue grew by 32.2% to R3.1-billion in our international operations and now makes up one-sixth (15.8%) of that portfolio's entire service revenues," he added.

Vodacom claims to have connected an additional 6 million customers to the Vodacom and Safaricom networks, a 5.8% increase to 110 million in total.

Joosub added, "At the same time, we invested close on R13-billion in network and IT infrastructure to ensure all customers benefit from superior service and network experience across our footprint. Despite the low economic growth environment in South Africa and our deliberate actions to reduce prices for all segments, service revenue in South Africa rose by 2.1%. We are particularly encouraged by the noticeable rise in new contract customers in the fourth quarter in both the consumer and enterprise segments."

International operations

"It was a stellar year for our international portfolio where economic and political environments have improved, although it remains challenging in various aspects. We grew service revenue by 15.6% and expanded margins. Other significant achievements include the 25.8% growth in data revenue, and another year in which M-Pesa helped to empower inclusive growth by supporting economic development in Mozambique, Lesotho, DRC and Tanzania."

Vodacom has experienced some challenges in its operations on the continent.

In April 2019, Bloomberg reported that five Vodacom Tanzania employees, including MD Hisham Hendi, have been released after they were detained for allegedly depriving the Tanzanian government of revenue.

Vodacom reportedly paid a settlement amount of 5.3 billion shillings ($2.3 million) for the release of the executives.

In May 2019 the telecoms operator efuted the allegation it underpaid the government in the renewal of its 2G license.

A statement issued by the company reads: "As a citizen company, compliant with the laws and regulations of the Republic, Vodacom Congo has obtained in a regulatory way the extension of the duration of its 2G license in accordance with the laws and regulations in force in 2015 and vigorously refutes all the allegations of fraud unduly spread over the press."

It has been alleged that in 2015 Vodacom secured a 10-year renewal of its 2G license in the DRC for US$16.25-million.

The operator claimed the sum also covered acquisition of additional spectrum in the 1800 MHz band.